Ricardo Perez-Truglia, UCLA Anderson
ZOOM:
"Betting on the House"
Abstract:
House price expectations play a central role in macroeconomics and finance. However, there is little direct evidence on how these expectations affect market choices. We provide the first experimental evidence based on a large-scale, high-stakes field experiment. We provided information about the evolution of local house prices to 57,910 U.S. individuals who had recently listed their houses on the market. Collectively, the properties listed by these subjects were worth $34 billion dollars. We randomized the information provided to create non-deceptive, exogenous variation in the subjects’ expectations about the future home price growth. We use rich administrative data to measure the effects of these information shocks on the recipient’s market choices. We find that, consistent with economic theory, higher home price expectations caused the owners to delay selling their properties. These effects are statistically highly significant, economically large in magnitude, and robust to a number of sharp checks. Our results indicate that market choices are highly elastic to expectations: a 1 percentage point increase in home price expectations reduces the probability of selling within 6 months by 2.45 percentage points.